Rupee extends loss after yesterday’s fall; further weakening seen this year

Indian rupee continued to weaken on Friday, after yesterday’s modest fall, due to increased demand for the US dollar from importers and banks, and pressure in the domestic equities market.

Strength in the US dollar against some other currencies overseas is also believed to have weighed on Indian rupee.

Indian rupee continued to weaken on Friday, after yesterday’s modest fall, due to increased demand for the US dollar from importers and banks, and pressure in the domestic equities market. Further, strength in the US dollar against some other currencies overseas is also believed to have weighed on the domestic currency.

The Indian currency shed 13 paise in the late morning trade, and was being quoted at 64.31 per US dollar, down 0.21% from the previous close. Yesterday, the rupee had fallen about 3 paise to end at 64.18 vs the dollar. Today, the rupee is likely to quote in the range of 64.10-64.35 levels, forex and treasury advisor IFA Global said in a note.

Meanwhile, Reuters reported that the investors are estimated to have increased their long positions in the rupee to the largest since May 2014. The rupee had hit a 20-month high against the dollar on April 26, rising along with the benchmark equity stock indices, which also made new all-time highs. The rupee has risen 5.61% so far this year, and has been Asia’s best performing currency.

However, experts say that the rally in Indian rupee may halt soon and the currency may even see a reversal of all gains through the next quarter on slowing portfolio inflows, potential downturn in equities markets and possible correction after the sharp surge, while expected hikes in the US interest rates will likely provide support to the US dollar.

A Reuters report, citing a poll, said on Wednesday that the rupee is forecast to weaken to 66.23 per dollar in the year, falling by over 3% from its current trading level of 64.22. The consensus Bloomberg forecast for the Indian currency is at 66 per US dollar by the end of June, and at 67 by the end of December. The Singapore-based lender and financial services provider DBS Bank expects the rupee to fall to 64.7 per US dollar by the end of the second quarter of the current year, and further to 64.8 by third quarter and to 64.9 by the end of the year.

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DBS Bank said in a research report released earlier this week that the rupee’s surprise appreciation could end if global stocks, including India, run into a summer correction,. “If equities correct in summer, INR could return all gains into 3Q (Jul-Sep) before recovering in 4Q, but closing the year below the high seen in 2Q (in April),” DBS Bank said in the report.